Hypergrowth and The Law of Startup Physics

The leadership at Coinbase, Lyft, Checkr and other high-flying startups are grateful that their coach, Khalid Halim, didn’t skip out on a class called Military Science as an undergrad at UCLA. What he thought was a throwaway course delivered one of his most valuable insights:

“I started noticing patterns in startups — which I’ve validated with executives and VCs over the years — that how companies scale and break matches military groupings. So, the most efficient group in the military is a group of three, then a group of eight, and then three groups of eight, so 24,” says Halim. “Look across companies and you’ll see that around 24 people, someone speaks up to say, ‘We need a manager.’ If a startup makes it to 48 people, the next break is often in HR. And so on. As they scale, companies have more predictable breaking points.”

This truth is not just academic for Halim, but hard-won alongside founders, many of whom he’s coached since they were barely more than a founding team. Reboot’s Halim has helped a team of six grow into a now famous startup that’s 300+ employees strong and valued at more than $1.5 billion. He’s coached an executive team as its startup grew from under a 100 people with a $300 million valuation to a 1,000-person company valued at more than $5 billion.

In this exclusive interview, Halim pulls at the strings of this scaling-and-breaking phenomenon to articulate what he calls the law of startup physics. He explains how companies and people grow at different rates — and what this tension means for how both will break while scaling. Halim shares how he’s seen this law apply to both executive teams and to founders, including the truths each must accept and the promises each must make. The VCs that work with Halim have played back to him how the founders that abide by this law can save themselves and their teams much heartache and stress — speedbumps that can cause any startup to decelerate.

THE LAW OF STARTUP PHYSICS

“It’s easier to work with the CEO at board meetings.”

“The CEO’s personal life seems more stable.”

“I think working with a coach saved the CEO’s marriage.”

These are the types of comments that makes the day for any executive coach — and exactly what Halim heard last fall from a few venture capitalists. They had approached him, asking why the CEOs with whom he worked with from their portfolio were more resilient, level-headed and on a better growth trajectory than some of their other founders. Halim took the compliment, but couldn’t pinpoint a common thread, given his approach is not curriculum- or framework- based but to simply discuss whatever is top of mind for his clients.

It was only later, separated from his work over the end-of-year holidays, that it came to him:

It was a concept that he had started sharing with his founders — and an entry point into a serious conversation about startup scaling and breaking. “Human beings grow biologically and linearly. A year from now, you will be a year older — there's no growth hacking we can do to make that happen faster. Even if we were looking at the metrics of ‘you’—the age of your bones, your height, everything — you're not going to grow exponentially. You're going to grow linearly because all biological systems do that,” says Halim. “A company, which is a collection of biological systems called humans, can grow exponentially. Especially in tech, companies exist in a world in which you can be serving 100 customers one day, and a million a year later.”

What puzzled Halim is how something that's fundamentally biological can be put together and the result is exponential. “I realized that humans actually do something that's exponential: they tell stories. They share them, believe them and have feelings about them. This is not soft science. There’s a huge organizing principle around it, which in startupland we call ‘vision,’” says Halim. “What do all founders do in the abstract? They say they’re going to build this thing that doesn't exist. Then, if they tell the story well, they get others excited about it and involved. Then, they can organize groups of people to put, in some measures, an unreasonable amount of effort for something imaginary in order to produce this outcome.”

Take cryptocurrency and specifically Coinbase, one of Reboot's longtime clients. “This will be a time capsule of a comment in the future, but right now we’re in the middle of people telling stories about something that does not yet have a ton a real world application in creating a ton of value. Whether it’s imaginary or not, we're in the vision phase of crypto,” says Halim. “It is a story about a future in which everything's going to be different and better. So, you have some of our smartest people in our industry moving toward it. In 2013, about a month after I started working with Coinbase, Bitcoin went to $1,200. Then, by early the next year, it dropped to $800, then $400, then $200.”

Coinbase had been scaling the team as the price of bitcoin dropped. “You can imagine at that peak in 2013 that you had a ton of people rushing into Bitcoin, and Coinbase was hiring. So, what happened when it dropped to 200? The truth of the matter is, is they didn't lose that many people, which, from what I’ve seen over the years, is shocking,” says Halim. “Many of them are running some of their major products today, the people that run GDAX and Coinbase wallet are people that were there in the room at that time. So, you have to pause and ask: what kept them there? If you spoke with the leadership team and employees at that time, they believed in an open financial system for the world, and that it was only a matter of time before the world changed. They were determined to be a part of that, even though, I’m sure, many owned Bitcoin and lost significant personal wealth. That, to me, was one of the first times where I really saw the power of vision to get people at that scale to work through adversity. And here we are a few years later, and many of the faces at Coinbase that I knew back then are still there.”

Khalid Halim

WHY THIS LAW MATTERS TO YOUR STARTUP

Aside from the power of story for startups, this confluence of linear versus exponential growth has two key truths that Halim surfaces for his clients. The first has to do with the law of startup physics as applied to an executive team:

1. Your startup will outpace most of its executives if it starts to grow.

Whether it’s a technical team or a startup in its entirety, Halim has seen this over and over again. “I worked with a company as the engineering team went from 20 to 60 to 100 to 200 people. In a matter of months, the engineering manager that got them from 15 to 60 people started to flounder,” says Halim. “People talk about learning on the job, but the truth of it is that managing teams growing at that clip is not something that is natural unless you've done it before. So at 60, people started to feel like they weren't being led well. So at that moment in time, you have to do what's called turning the team.”

The phrase was popularized by venture capitalist Fred Wilson, though Halim brings in a twist from Daniel Coyle’s The Talent Code. “Fred Wilson talks about a founder who claims that on its way to scale, a company will turn its team over three times. That means that the initial team will depart, be replaced by another team, and then replaced by yet another team again,” says Halim. “The thing is that it’s not that these people aren’t growing. It’s that they are either not growing fast enough or there’s a barrier — ego, company structure or something else — that stalls them and their company. Even incredibly talented people at fast-growing companies fall behind.”

Learning can accelerate, but, on the most fundamental level, you can’t bypass the repetition it takes for mastery, whether it's management or figure skating. “When you do something, your brain creates a connection among neurons that are involved. Whether it's swinging a tennis racket or a dance partner, each time you swing, that connection fires and through the process of what's called myelination, it creates a faster connection on the circuit,” says Halim. “The myelin sheath is the white part of the brain that covers these circuits, and the more myelinated something is, the faster it fires. That’s why, if I try and hit an MLB pitch, I can’t react fast enough to hit the ball, but if an MLB player does, they can connect with a ball coming at them at 107 miles an hour. That's because that for the MLB player, those circuits are so fast. That myelination of that wiring — a biological process — only happens with repetition over time.”

If a person can only develop linearly and a company can grow exponentially, what does that mean for the employee or executive? According to Halim, there are a few options once you find yourself in a situation:

OPTION 1: Fire the exec. “Firing is just one option, but one that happens frequently, because many executives’ ego can’t stomach Option 2,” says Halim. “This should never be a surprise to the person. Ideally, there’ve been conversations along the way about how the growth of the company is outpacing the growth of the executive, as well as attempts to support the person along the way with mentors, advisors and coaches. The biggest barrier to success at this point is ego, which surfaces interpersonal and cultural issues that weren’t there before the exec started struggling. The combination of being in over their head and interpersonal friction often leaves firing the exec as the best option.”

OPTION 2: Hire above the exec. “The other option is to recruit and integrate someone who has done the job above the executive. This conversation is difficult, but navigable,” says Halim. “Say you’re talking to the engineering manager that’s underwater at 60 people. Try saying, ‘We want to continue to help you grow in your career. But, at this moment in time, your career growth has stopped, as you're drowning, making it difficult for you to help the company continue to grow. So we’re at a crossroads, where we need to decide: do we hire above you and get you a mentor that you need to grow, or can your ego not take that and we have to replace you?’ I would love to say most people are open to hiring above, but a lot of people can't do it well.”

Both of these options are painful on many fronts: for founders, their early executives and the rest of the team. It’s also very likely to happen if founders don’t have foresight to have a more proactive conversation about a tour of duty earlier. This is where Halim has helped many of his founders, urging them to make a promise with their senior leaders as soon as they onboard.

PROMISE: “Let’s talk about your last day first. If you look at the latest employment data, it’s likely that you're going to leave or we're going to part ways somewhere between 18 months and three years. Now you may be an exception to this trend, but we know someday it’ll happen. So with the time we have, here’s my commitment to you: My pledge to you is that we will be committed to your growth. My pledge to the company and its investors is to its continued growth. I can only keep both promises if the two stay connected. There’ll be a point when they don’t, and when that day comes, I commit to having another conversation about what’s next, whether that’s here in another role or elsewhere.”

Doing this at the onset accomplishes a few goals:

It sets expectations. “Delivering this statement not only brings more thoughtfulness and predictability around an employee’s stint at a company, but builds an idea of growth into company culture from the outset,” says Halim. “The term I like to use is selfish altruism. Selfish altruism is this idea that I want you to come here — and I selfishly want you to find every opportunity you can to grow yourself, but the only way you're going to be able to use those opportunities is if they're aligned with growing the company.”

It provides career definition. “Different than setting expectations, having this conversation helps actively define where an executive might be most effective, and of highest value to a company at a certain stage of growth,” says Halim. “I once worked with one of the first engineers at what turned out to be a unicorn. He's been an incredible mentor to people who are trying to build engineering teams from zero to 50, but he’s never managed a team of 200, 300, or a 1000. But he knows his sweet spot — and now can easily plug in as an employee or consultant in any early-stage technical team.”

It establishes trust. “Don’t bring up the tough conversation when you’re about to have it. Set the tone early. State the promise — or even go further to say. If we start to grow exponentially, we’ll hit a point where I’ll likely need to turn the team. We may be faced with a conversation where you may be out of your league. We may need to carve out a different role for you. Or hire above you at some point. Or part ways.’” says Halim. “Laying out those options show you have a plan from the start — not only for the company but for the new executive. And you can always reference this first conversation, which is why you have it on day one.”

The alternative is not dramatic or grim, but rather a gradual slip toward slow growth. “What it looks like all over are startups keeping somebody in a role longer than they should be in it. If that executive is an early employee, the founder feels some amount of gratitude or obligation to take care of them. But instead of doing that, the founder lets the executive sit in a position where the role is expanding far faster than they can learn, so they fail. And the founder starts to not take care of the company because it's now slowed down because she doesn't want to have the conversation she needs to have,” says Halim. “That’s what an unkempt promise looks like. It's not being honest about what the promise actually is.”

The double-edged truth of the fast-scaling startup: If the company grows as it should, it will outgrow many of its people.

2. The founder is biological, too, but this law doesn’t apply.

The founder, it turns out, is the one exception to the law of startup physics. “The CEO often says, ‘Why does everyone else lose their job and I don’t? I’m biological.’ It’s a really important question,” says Halim. “The answer gets back to the one thing humans can do that is exponential: thought, which extended turns into story or vision. You can think of a toothpick. Then you can think of 1 million toothpicks. And then you can think of the forest from whence they came. You can make those leaps in an instant, but only those mental leaps.”

Applied to the founder, exponential thought is company vision. “One of my studies is in ontological coaching, so I’m particular with words. When someone says, ‘I have a vision,” you never say, ‘Point to it.’ You say, ‘Tell me about it.’ And that’s because it’s a hallucination. A founder imagined something: a vision of how she wants the world to be. She articulates it to a co-founder, and he joins. Then to an investor, and she writes a check. And then to recruits, and they join the team,” says Halim. “The thinking of the company is limited to all the thinking in the company. Most executives in a company are thinking about OKRs — and the extent of their creativity is mostly around how to better execute what needs to get done on the roadmap. This is essentially biological, linear iteration. But that creates an average company. So you need someone in the company who’ll think bigger than the company itself, about its role in the industry and world. Take Jeff Bezos. No hired executive could’ve gone from selling books to server space to rocket ships. Only founders make those kinds of mental leaps. And that is why they can keep up with a company that is scaling exponentially. ”

The reason why a founder keeps her job is not just because of vision but because of declarative authority. “There's another unique aspect of being the founder of a company. It’s the only position in which you can hire people more senior than you that report to you. If I lead marketing, I can't hire somebody with 10 years more experience to report to me, but if I'm the founder, I can hire people with 10 years more experience than me in marketing and have them report to me,” says Halim. “They're reporting to me, again, because of this feature of leadership. They believe in this vision that I've painted, that they're signing up for and want to follow. But also because as a founder I can say, ‘We’re going here’ and it will happen, not the other way around.”

Founders are unique in this capacity for vision, as it’s not the same with hired CEOs. “A hired executive is put in place by the board, and once you’re hired by the board, you report to the board. And the board does not have exponential thinking,” says Halim. “Elon Musk is a great example of how a visionary founder part-time at Tesla and SpaceX is better than a full-time hired CEO. It’s not that there aren’t phenomenal CEOs who could take the role, or that aren’t talented. But a part-time Elon is better than a hired CEO.”

So what enables founders to tap into their full capacity to build companies that grow exponentially. “It’s intentionality around basics and extracurriculars. In other words: ‘Are you eating? Are you sleeping? Do you have a regular date night, or are you having a social life?’” says Halim. “It all has to do with peak positive emotions. I surveyed the leaders and they said, ‘I have peak emotions but most of them are not positive inside my company. There's stress and anxiety around where we are and where we could be.’ Peak positive emotions come from the ‘outside world,’ from connecting with other humans, a good night's sleep, from taking time away like changing your environment, and taking a vacation.”

PROMISE: “This is a promise to my co-founders and myself. I will ‘get out of the building.’ I will take founder vacations. I will keep a date night with a spouse or loved one. If I don’t have one, I will hire an EA. This is all to help refill my mental and emotional reservoir, so I can perform in ways that I couldn't on day 10 of 14-hour days. I need to experience the full range of peak emotions to get to peak performance.”

Here is why this promise is particularly important:

Sets an example. “This promise is not only important for the performance of the organization and the health of the founder, but for the performance and health of the team. Startups say we have unlimited paid time off, and then the founders don't take a day off. In this case, ask people if they’ve taken PTO, and don’t be surprised if they say no,” says Halim. “Especially at the start, people always model their behavior after the founders. Some founders, like Bart Lorang of FullContact, have taken this seriously and have something called ‘paid paid vacation.’ On top of salary, they will literally pay you to get out of the building. It’s that important to disconnect to recharge, but reinject better work into the company.”

Increases personal performance. “Everything we do is meant to sprint then rest. There's also a book,Spark, that finds that immediately after exercising, your I.Q. goes up a couple of points,’ says Halim. ”The reason is, if you think about when we sprinted back in the caveperson days, it was either to not be eaten or to eat. So it was really important to rest and consolidate what you just learned after a sprint. Biologically, we are sprinting beings, not marathon beings. It is really unhealthy to eat consistently over time and always be nibbling on food. It turns out that it is quite healthy to stop eating for some amount of time to allow the body to go into what they call repair mode. Your cells have two different modes: growth and repair. It doesn't go into repair mode if it has an unlimited supply of growth and fuel.”

Stokes creativity and problem-solving. “How many great ideas does someone have when they are working hard against a deadline and on their 14th hour of work? None. If you’re taking a breath — on a weekend away or with friends or at the gym — creativity happens,” says Halim. “Solving a problem, as Einstein says, does not happen by using the same thinking as that which created it. You can’t get super creative inside what is a company that is solving an already defined problem. You’re in a machine that’s built to solve a current problem set. Remove yourself to get new thinking.”

To drive the point home, Halim gives an example from his coaching career. “I was working with a set of founders early on at a company as they started growing exponentially and neither had taken a vacation in a long time. So I said, ‘You guys need to take a vacation in the next month’ and they didn't do it. So, I turned to their EA and I said, ‘Book them tickets. I don't care if it's a founder honeymoon, they have to leave the building.’ Since I had been there early and I had a certain amount of trust in the organization, he booked it,” says Halim. “Then, they were sending me pictures from Hawaii and the joke was, ‘Hey, we're on our founder honeymoon.’ They did it every year after that. That practice became a critical lever in their cofounder relationship, which in turn was instrumental to the health of the company.”

Halim issues one caveat around this part of the law of startup physics. “So, there's a world in which you're a small startup pre-product market fit, and there's a world in which you're after-product market fit. What I’m referring to is a post product-market fit scenario, when it’s feasible and critical to get out of the building,” says Halim. “At that stage, pace is critical and there needs to be a break. When you're on a longer kind of marathon path to scale post product/market fit, you have to build the brakes. It's like the Indy 500, the pit stops have to come at a regular clip.”

BRINGING IT ALL TOGETHER

At the end of the day, the law of startup physics has everyone leaving the building — whether that’s the executives whom the startup outpaces or the founders who need to disconnect to recharge, reinvest and reintegrate new inputs into their vision. All of this happens because humans grow biologically and linearly, and startups are geared to grow exponentially. However, it doesn’t mean that this tension leads to fissures. With every early employee and executive, have a conversation about their last day on their first day. Make an explicit pact around their growth, the company’s growth, how they must connect, and how one day they won’t. Outline the options you’ll explore at that point. If you’re a founder, recognize why you’re the key to exponential growth at your company, and why that makes your tenure different than everyone else’s stint. You must also get out of the building, both to get inputs to extend the vision of the company and to set an example for your team. Schedule date nights and vacations — and stick to them as fiercely as a launch date. Your company — and people — depend on it.

“The law of startup physics need not be brutal, but it does govern how fast-growing startups scale. As an executive coach, I’ve seen it happen dozens of times. Those that orient their people around an explicit tour of duty and are forthcoming about what will happen when the company starts scaling, not only weatherproof their team, but supercharge them,” says Halim. “What’s left to do after that is taking care of the one lever to trigger exponential growth: the founders. The obvious, but often neglected solution is to get out of the building. We do it to meet customers or meet partners, but not enough for the founders’ sake in and of itself. They are the ones that stand on the edge of where their company is now, looking out at where the company could be. We need to encourage them to venture beyond the company’s periphery, not just gaze at it from a distance. If we do, they’ll come back with more than with which they left.”